FTC Initiates Privacy Rulemaking Despite Congressional Momentum: Republican Commissioners Issue Strong Dissents

At a virtual news conference last Thursday, the FTC announced the adoption of an Advance Notice of Proposed Rulemaking (ANPR) on "commercial surveillance" (that is, the use of personal information) and "lax" data security practices.

Over forceful objections from the two Republican Commissioners, and in the face of significant congressional progress on a bipartisan, bicameral federal comprehensive data privacy bill, this action by the majority initiates a "Magnuson-Moss" rulemaking pursuant to Section 18 of the FTC Act.

The ANPR:

[I]nvites comment on whether it should implement new trade regulation rules or other regulatory alternatives concerning the ways in which companies (1) collect, aggregate, protect, use, analyze, and retain consumer data, as well as (2) transfer, share, sell, or otherwise monetize that data in ways that are unfair or deceptive.

It poses a total of 95 wide-reaching questions, grouped into the following broad categories:

• The extent to which personal data practices and security measures harm consumers, particularly children and teenagers;
• The appropriate way to balance costs and benefits; and
• Whether the FTC should regulate prevalent data privacy and security practices.

In just one troubling example of the ANPR's explicit bias against the prevailing notice-and-consent paradigm – a point of view that Commissioner Noah Phillips in his dissent characterizes as "a rather dystopic view of modern commerce" – question 74 asks under "which circumstances, if any, is consumer consent likely to be effective" and question 77 seeks input on "[h]ow demonstrable or substantial must consumer consent be if it is to remain a useful way of evaluating whether a commercial surveillance practice is unfair or deceptive" (emphases added).

In her Dissenting Statement, Commissioner Christine Wilson objected to the ANPR primarily on the basis of the risk it poses to the continued progress of the American Data Privacy and Protection Act (ADPPA). As I noted two weeks ago in a Perspectives from FSF Scholars, an amended version of the ADPPA on July 20, 2022, cleared the House Commerce Committee on a 53-1 vote.

Emphasizing her unwavering preference for congressional, rather than agency, action, Commissioner Wilson made plain that "[t]he momentum of ADPPA plays a significant role in [her] 'no' vote" – and that she is "gravely concerned that opponents of the bill will use the [ANPR] as an excuse to derail the ADPPA."

Commissioner Wilson did acknowledge that, at an earlier point in time, she "became willing to consider whether the Commission should undertake a Section 18 rulemaking to address privacy and data security."

However, for a litany of reasons – including "changes to the Section 18 Rules of Practice that decrease opportunities for public input and vest significant authority for the rulemaking proceedings solely with the Chair" and "Chair Khan's public statements [that] give [Commissioner Wilson] no basis to believe that she will seek to ensure that proposed rule provisions fit within the Congressionally circumscribed jurisdiction of the FTC" – the Commissioner has had an abrupt change of heart.

I documented this evolution in a series of posts to the Free State Foundation's blog.

In his Dissenting Statement, Commissioner Phillips reiterated a similarly longstanding conviction that Congress, rather than the FTC, "is where national privacy law should be enacted." In that vein, he wrote that he is "heartened to see Congress considering just such a law today" and hopes that "this Commission process does nothing to upset that consideration."

Taking issue with the ANPR's foundational terminology, Commissioner Phillips labeled the phrase "commercial surveillance" an "academic pejorative," one that is "defined so broadly (and with such foreboding) that it captures any collection or use of consumer data" – and one that "trades a serious attempt to understand business practices it would regulate for the chance to liken untold companies large and small to J. Edgar Hoover's COINTELPRO."

Expanding upon this concern, Commissioner Phillips makes the following additional points:

• The ANPR "provides no notice whatsoever of the scope and parameters of what rule or rules might follow" – thereby "undermining the public input and congressional notification processes" required by Section 18.
• It exceeds the FTC's congressionally delegated Section 5 authority over "unfair or deceptive acts or practices" and "signal[s] the majority's view that the scope of the rules passed by the unelected commissioners of an independent agency should be on par with statutes passed by elected legislators." Referencing (1) "personalized" or "targeted" advertising, and (2) consent, which he refers to as "one of the traditional bedrocks of privacy policy," he argues that the ANPR portends regulating "common business practices we have never before even asserted are illegal."
• Overstepping the limits of the FTC's jurisdiction, "[i]t seeks to recast the agency as a civil rights enforcer, contemplating policing algorithms for disparate impact without a statutory command."
• It "shortchanges data security, one area ripe for FTC rulemaking."

Critically, Commissioner Phillips highlights how the ANPR in practice could result in consumer harm: "Reducing the ability of companies to use data about consumers, which today facilitates the provision of free services, may result in higher prices – an effect that policymakers would be remiss not to consider in our current inflationary environment."

On September 8, 2022, the FTC will host a virtual public forum on the ANPR.

Comments on the ANPR will be due 60 days after its publication in the Federal Register.

#FSFConf14 Speakers on Need for Federal Privacy Law

At the Free State Foundation's recent Fourteenth Annual Policy Conference, FTC Commissioners Christine Wilson and Noah Phillips voiced their support for a federal data privacy regime. And on May 23, 2022, another speaker at #FSFConf14, USTelecom President & CEO Jonathan Spalter, authored a blog post urging the Biden Administration and Congress to work together "on this essential national priority."

In the meantime, Connecticut has compounded the confusion and chaos wrought by multiple, inconsistent state-level comprehensive data privacy statutes. On May 10, 2022, Governor Ned Lamont signed into law "An Act Concerning Personal Data Privacy and Online Monitoring." Connecticut is the fifth state to date – following California (twice), Virginia, Colorado, and Utah – to fill the federal void.

Nevertheless – and forgive me if I sound like a broken record – recent reporting suggests that federal lawmakers may be making progress behind the scenes toward a workable consensus on data privacy.

During #FSFConf14's "The View from the FTC," a Fireside Chat hosted by Maureen Ohlhausen, former FTC Acting Chairman and Commissioner (a video of which is available here), Commissioner Wilson echoed that optimistic sentiment (direct link here). Describing herself as one who "tend[s] to be a Pollyanna," she stated that "I'm actually hopeful, more hopeful than I have been, because I hear there's a concerted push to get federal privacy legislation across the finish line soon."

Commissioner Wilson also reiterated her position that federal privacy legislation is necessary:

I have been advocating for federal privacy legislation almost from the day that I was sworn in as a Commissioner. And I do think it's important, I think there is a market failure that needs to be addressed. I think consumers have very little understanding of the data that's collected from them and how that data is collected, used, and sold.

I also think that businesses need guardrails, they need to understand the rules of the road. And right now we have states with conflicting opinions about what those guardrails should be, and we have a developing international regime also with conflicting ideas. And so, businesses need clarity and certainty in order to know how to comply with the law, but also to invest and to grow. 

Responding to a related query regarding what the FTC can do in the interim to "to fill the gap," Commissioner Wilson noted the agency's authority under Section 5 of the FTC Act to address "unfair and deceptive acts or practices in or affecting commerce" and subject-matter-specific jurisdiction pursuant to other statutes, such as the Children's Online Privacy Protection Act (COPPA). She also highlighted a "body of consents that provide very good rules of the road."

Later in the Fireside Chat (direct link here), Commissioner Phillips, responding to a question from an audience member regarding smartphone apps, acknowledged the existence, with respect to personal data, of an "information asymmetry" – a concept familiar to those who attended Commissioner Wilson's keynote address during FSF's Twelfth Annual Policy Conference in 2020.

Given that "[c]onsumers may not understand fully what they're engaging in," Commissioner Phillips indicated his support for a "nutrition label" solution:

[O]ne of the things I've always felt would be very useful is to look more carefully at things like labels. And understand, you know, what are ways that we can get good information out to people? We do this in a lot of other areas, right?

And you think about food, right? It's maybe not efficient for me every day to, you know, if I'm at the grocery store, examine each label. But if I care, and if I want to, and the cost to you, the producer of Honey Nut Cheerios, is fairly low, that can be a really beneficial rule. A rule that is good for competition. A rule that allows consumers to shop across products, including for those features. 

So let's take what are you doing with your data, right? And Apple has a version of this, in iOS 14, they have these "nutrition labels," they call them. But it's a way of taking complex subject matter and boiling it down in terms that allow people to sort of shop across products and compare. And perhaps even to create markets around features where markets may not naturally arise.

Relatedly, USTelecom's Mr. Spalter, who participated in Free State Foundation President Randolph May's #FSFConf14 "The 'Hottest Topics' in Communications and Internet Policy" Fireside Chat (a video of which is available here), earlier this week published a blog post titled "Global Privacy Leadership Begins Here at Home."

After acknowledging the Biden Administration's "efforts toward harmonizing strong consumer privacy protections around the world" via the Global Cross-Border Privacy Rules Declaration, Mr. Spalter made the salient point that "for the U.S. to truly lead this worldwide endeavor, our nation must first lead by example here at home."

He therefore "urge[d] the Administration and Congress to work together, with a sense of urgency and purpose, to [adopt national privacy legislation] in the current legislative session." Specifically, a bill that "deliver[s] consistent online privacy protections that apply uniformly across the country and to all companies in the internet ecosystem."

In Eyebrow-Raising Fashion, FTC Adopts New Policy Statement on Prior Approval Provisions

Last week, the FTC finally filled the vacuum it created this summer when, in a vote along party lines, it rescinded the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement). The new Policy Statement, perhaps unsurprisingly, heralds a worrisome return to, and expansion upon, pre-1995 practices shown to discourage pro-competitive transactions. Equally newsworthy, however, are the departures from traditional process associated with this agency action.

Prior to 1995, the Commission routinely required that consent decrees include an obligation that the combined entity provide advance notice of, and obtain prior approval for, subsequent transactions in the relevant product and geographic markets. The 1995 Policy Statement put an end to that practice.

However, and as I detailed in a July 23, 2021, post to the FSF Blog, at the FTC's July Open Commission Meeting, the agency's Democratic majority opted to rescind the 1995 Policy Statement. The two Republican Commissioners articulated their concerns about that decision.

Commissioner Noah Phillips characterized prior approval provisions as "a decade-long M&A tax on anyone who enters a merger consent" and decried the inconsistency of the majority's action with the intent of the Hart-Scott-Rodino Act of 1976 (HSR Act). He also argued that the resumed use of such provisions will create competitive disparities between those subject to consent decrees and those not so constrained – and, as a consequence, "lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare."

Commissioner Christine Wilson explained how prior approval conditions create opportunities for "questionable exercises of enforcement discretion"; emphasized that, even with the 1995 Policy Statement in place, the FTC retained the ability to require prior notice and/or approval in consent decrees under warranting circumstances; and highlighted that "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years."

That void now has been addressed, but decidedly not in a manner to the liking of either Republican Commissioner.

On October 25, 2021, the FTC announced the adoption of a new Prior Approval Policy Statement (2021 Policy Statement). Per the Press Release, "merger enforcement orders will once again require acquisitive firms to obtain prior approval from the agency before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of ten years." Prior to 1995, prior approval provisions remained in effect for a maximum of ten years.

In addition, per this expanded policy, the agency may require prior approval for:

• Transactions outside of the affected product and/or geographic markets when, based upon the application of a "non-exhaustive" list of subjective factors, it concludes that "stronger relief is needed";
• In instances where the parties abandon the proposed deal; and
• For the sale of divested assets by entities not involved in the challenged transaction.

Thus, the 2021 Policy Statement in significant ways is much more expansive than those practices in place prior to 1995.

Although there currently is a 2-2 split between Democratic and Republican Commissioners on the Commission, Chair Lina Khan and Commissioner Rebecca Kelly Slaughter were able to push through the 2021 Policy Statement with the assistance of a tie-breaking "zombie vote" cast weeks prior by former Commissioner Rohit Chopra.

However, that is not the only procedural anomaly that transpired.

While a Dissenting Statement from Commissioners Phillips and Wilson eventually was released, on October 29, 2021, it notably was not included in the initial announcement.

As a result, Commissioner Phillips took to Twitter to voice his displeasure:

The Commission issued this ill-advised policy without giving minority commissioners a promised opportunity to issue a simultaneous dissent, as has always been the practice. ⁦@CSWilsonFTC⁩ and I will issue a statement later, as planned. https://t.co/KkQLbFzdTy

— Noah J. Phillips (@FTCPhillips) October 25, 2021

Commissioner Wilson weighed in, as well:

Simply stunning.

Strong dissent forthcoming. https://t.co/bHFpxOJmOC

— Christine S. Wilson (@CSWilsonFTC) October 25, 2021

For more on Commissioner Wilson's general process-related concerns, please read "Congressional Testimony of FTC Commissioner Wilson Addresses Agency Processes, Section 13(b), and Federal Privacy Legislation," a July 2021 post to the Free State Foundation's blog.

Eventually, the official FTC Twitter account issued a mea culpa:

The Office of Public Affairs unfortunately issued the prior approval policy release prematurely and plans to update immediately upon receipt of the dissenting statement from minority Commissioners. We regret the error.

— FTC (@FTC) October 25, 2021

Nevertheless, in a footnote to their joint Dissenting Statement, Commissioners Phillips and Wilson reiterated that "[t]he policy at issue was announced without our participation, which is contrary to longstanding practice and the opposite of what was promised."

Moving to the substance of their objections, Commissioners Phillips and Wilson dismissed the 2021 Policy Statement as "yet another daft attempt by a partisan majority of commissioners to use bureaucratic red tape to weigh down all transactions – not just potentially anticompetitive ones – and to chill M&A activity in the United States."

In addition, they:

• Pointed out the various ways, noted above, in which the 2021 Policy Statement goes even further than pre-1995 practices;
• Detailed how the 2021 Policy Statement stands in conflict with procedures set forth by Congress in the HSR Act;
• Explained how "the majority oversells the benefits of its actions and significantly undersells the harms";
• Highlighted how this action further exacerbates the growing disparity between how the FTC and the Department of Justice review transactions; and
• Criticized the majority's failure to seek public input before finalizing the 2021 Policy Statement.

I urge you to read the Dissenting Statement of Commissioners Phillips and Wilson in its entirety. It can be accessed here.

Privacy Recap: Biden Nominates Bedoya to FTC, House Commerce Committee Proposes $1B for New Privacy Bureau

It's not yet Wednesday, and already it's been an eventful week with respect to the FTC and data privacy.

First, President Biden on Monday nominated Alvaro Bedoya to be the third Democrat to serve as a Commissioner at the FTC. The official announcement by the White House states that "[h]is research and advocacy focus on the idea that privacy is for everyone" and touts his work on facial recognition technology.

Mr. Bedoya is a visiting law professor at Georgetown Law, where he serves as the founding director of the Center on Privacy & Technology.

Republican Commissioner Noah Phillips tweeted that "Alvaro would bring a bright and thoughtful voice and a depth of experience working across the aisle on privacy to the FTC."

Second, the House Committee on Energy & Commerce yesterday began a full committee markup of the so-called Build Back Better Act, a series of legislative recommendations for budget reconciliation.

Today, lawmakers are expected to consider Subtitle O, which would appropriate $1 billion over the next ten years to fund a new Privacy Bureau at the FTC "to accomplish the work of the Commission related to unfair or deceptive acts or practices relating to privacy, data security, identity theft, data abuses, and related matters."

News reports suggest Republican opposition to this proposal, including its hefty price tag, which totals nearly three times the agency's budget for fiscal year 2021: $351 million.

At the same time, politicians from both sides of the aisle continue to agree on the persistent and distinct need for federal privacy legislation.

In the Politico piece linked to above, a Republican committee aide speaking anonymously emphasized the importance "of passing actual legislation with real privacy protections for all Americans."

Likewise, Democratic Senator Maria Cantwell (WA) tweeted that the proposal is "an important step for protecting consumers," but also that she "will continue to fight for a federal privacy and data security law that protects consumers and creates certainty for businesses."

In a recent Perspectives from FSF Scholars, "Pressures Multiply for Congress to Act on Data Privacy," I listed the mounting pressures on Congress to adopt a comprehensive federal data privacy regime, which include the following:

• Three states (California twice, Virginia, and Colorado) so far have passed inconsistent laws that unnecessarily create costly headaches for businesses and confusion for consumers.
• The European Union (EU) has in place the General Data Protection Regulation (GDPR) and, in August, China adopted the Personal Information Protection Law.
• Cyberattacks, including one involving the information of over 50 million consumers discovered in August by T-Mobile, call out for a comprehensive data privacy regime.
• The lack of a federal data privacy law impedes efforts to reestablish a privacy shield for personal data transfers from the EU to the U.S.

I therefore suggested that legislation along the lines of the Setting an American Framework to Ensure Data Access, Transparency, and Accountability (SAFE DATA) Act, reintroduced this session by Republican Senators Roger Wicker (MS) and Marsha Blackburn (TN), might serve as a promising starting place.

Relatedly, in a December 2019 piece for the Free State Foundation entitled "Federal Privacy Legislation: Bipartisan Discussions Devolve into Dueling Drafts." I compared an earlier iteration of the SAFE DATA Act favorably to the Consumer Online Privacy Rights Act, rival legislation cosponsored by Senator Cantwell.

Latest Alteration to FTC Merger Review Process Targets "Informal Interpretations"

In a series of recent posts to the Free State Foundation's blog, I have highlighted not only the many changes that the Biden FTC already has made to the way the agency reviews proposed transactions under the Hart-Scott-Rodino (HSR) Act, but also the alarms that the two Republican Commissioners, Noah Phillips and Christine Wilson, have sounded in response.

• While participating in a panel discussion on August 16, 2021, at the Technology Policy Institute's Aspen Forum, Commissioner Phillips voiced his "concern[] that some of the policies we're adopting are essentially aimed at undoing the Hart-Scott-Rodino merger review legislation."
• Commissioner Wilson, in an August 9, 2021, statement Regarding the Announcement of Pre-Consummation Warning Letters, wrote that she is "gravely concerned that the carefully crafted HSR framework is suffering death by a thousand cuts."
• Testifying on July 28, 2021, before the House Committee on Energy & Commerce's Subcommittee on Consumer Protection and Commerce, Commissioner Wilson argued that "[p]ractitioners, academics, and former enforcers across the political spectrum have expressed concern about the agency's abrupt departure from regular order and … I share these concerns."
• And in a July 23, 2021, post to the FSF Blog, I summarized the objections of Commissioners Phillips and Wilson to the majority's decision to rescind the 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases.

The latest instance where agency "traditions and norms have been jettisoned" was announced in "Reforming the Pre-Filing Process for Companies Considering Consolidation and a Change in the Treatment of Debt," an August 26, 2021, blog post written by Holly Vedova, Acting Director of the FTC's Bureau of Competition.

For decades, merging entities have sought and received "informal interpretations" from FTC staff to help them navigate the complicated HSR process. As Ms. Vedova notes, [t]hese interpretations are not reviewed or authorized by the Commission, and do not carry the force of law." Nevertheless, they have proven helpful. But perhaps no longer.

The specific objective of the blog post is to highlight "one initial example of where the informal interpretation program missed the mark," that is, how the retirement of debt is to be treated when calculating the total value of a proposed transaction.

Parties to a potential merger are required to file an HSR premerger notification only if the transaction clears a certain dollar-value threshold, currently $92 million. In light of a 2006 informal interpretation, "[u]p until now, the Bureau advised that the retirement of debt should never be included in this calculation."

Effective September 27, 2021, however, "the full or partial retirement of debt should be included in calculating the Acquisition Price in any instance where selling shareholder(s) benefit from the retirement of that debt."

More broadly, however, the blog post ominously reveals that the entire "voluminous log" of informal interpretations is under review and therefore is vulnerable to revision or removal on a case-by-case basis – or, potentially, elimination altogether.

Ms. Vedova begins with the following assertion: "As the FTC continues to experience a massive surge in planned merger deals, we are looking at every step of the merger filing process to identify ways to streamline and maximize our efficiency."  However, it is hard to see how this announcement will accomplish either goal, for two reasons.

One, in taking steps that will expand the number of instances where parties must include debt in the total value of a transaction, the agency is adding to its workload, as more deals will trigger the obligation to file an HSR premerger notification.

To the extent it is true "that some merging parties have responded [to the 2006 informal interpretation regarding the retirement of debt] by structuring deals in ways that they believe fall outside of the filing requirements," it is not necessarily a bad thing that the FTC will have an opportunity to review more transactions than it otherwise might. The fact remains, however, that the agency's to-do list will grow. Its backlog likely will, as well.

Two, this change will decrease, not maximize, efficiency. As Commissioners Phillips and Wilson repeatedly have noted, recent agency actions have created substantial uncertainty for the business community. That uncertainty heightens risk, disincentivizes beneficial transactions, and leads to a net decrease in overall consumer welfare.

By calling into question the continued value of informal interpretations generally, Ms. Vedova's blog post necessarily injects even greater unpredictability into the overall process.

FTC Commissioner Phillips' Recent Comments on Changes to Transaction Review Process, Proper Focus of Antitrust Law

In a series of recent posts to the FSF Blog, I have highlighted instances where the two Republican FTC Commissioners, Noah Phillips and Christine Wilson, have voiced concerns regarding changes to the process by which the agency reviews transactions.

Appearing on a panel at the Technology Policy Institute's just-concluded Aspen Forum 2021, Commissioner Phillips was afforded an opportunity to expand upon his recent public statements. His remarks were noteworthy.

When asked to assess the performance of Lina Khan during her first two months as FTC chair, Commissioner Phillips responded in relevant part that:

There are some changes being made that I think are good things. I like the concept of open meetings. I think it's good to show the public … who we are and what we're doing. 

There are some changes that I don't like as much…. Something that I said recently is I'm concerned that some of the policies we're adopting are essentially aimed at undoing the Hart-Scott-Rodino merger review legislation. That was a piece of legislation adopted by the Ford Administration in 1976 and it has been one of the great "win-wins" in antitrust law over the decades. 

Businesses got an answer to their question and didn't have to waste a lot of money. Government enforcers got a chance to look at transactions before they happened, and didn't have to deal with hostile judges who didn't want to "unscramble the eggs." And it's been really good to give the opportunity to the government to review mergers, to give answers to businesses, and, ultimately, and this is the point, to help consumers.  

But I fear that some of the steps we're taking now will make that process less effective and less efficient and less fair. And so there are certainly some things we're doing … that I'm not a fan of. It's early days, and we'll see what happens.

In response to a question regarding the FTC's merger-review backlog, Commissioner Phillips stated the following:

What I will say is that we have deliberate and public policies right now of holding off on making decisions. So, for example, we adopted a policy, and … this was under Acting Chair Slaughter, when companies sought early termination … for deals that were non-problematic, that no one had an issue with, companies used to be able to come to the government and say, "Hey, you're not interested in this, can we just go ahead and do it?" And now we're saying, "No, you can't. You just have to wait. Not for any reason. Just because." That, to me, adds some needless friction to markets.

Another example, we announced a policy that in more cases we're going to be demanding of companies to give us prior approval rights for future mergers in our consents. And one thing I fear here is that this is just going to make doing consents harder. Resolving things ahead of time harder. 

Now I know a lot of people are worried that consents don't work well. And I know people don't want to say, "Yes," they don't want to say, "Yes, I'm ok with this merger." But the whole congressional scheme from 1976 forward depends upon the ability of the agencies to get things done. Sometimes we  sue… sometimes we go to court. But in order to bring those cases, we're going to have to resolve others. And I just worry that we are needlessly impeding our ability to do so.

Later in the discussion, Commissioner Phillips made a comment very much in line with a July 2021 Perspectives from FSF Scholars critical of calls to expand the focus of antitrust law beyond the relatively narrow "consumer welfare" standard that has prevailed for half a century.

In "Failure Everywhere? The Expansion of Goals for Antitrust," Timothy Brennan, Professor Emeritus, School of Public Policy, University of Maryland-Baltimore County (UMBC) and a member of the Free State Foundation's Board of Academic Advisors, argued that attempts to achieve too much through antitrust law in actuality are likely to produce the opposite result:

Expanding the range of goals to pursue with antitrust may end up not only doing a poor job protecting consumer welfare, but also will impede achieving the equity, employment, fairness, and other social objectives motivating the critics of traditional antitrust ….

In responding to moderator Tom Lenard's question whether the United States has a "serious and growing market power problem," Commissioner Phillips made a similar point:

What I do think … is a problem in some of the discussion that … everyone is having is that almost everything that people view as negative, either that a particular firm is doing, or that they see in society, let's say, the redistribution of wealth from labor to capital, they tag as a problem of market power. So: company does a bad thing, you will see infinite number of people on Twitter talk about how, if we had competition, we wouldn't have that. 

My question is, "Why? Why do we assume that's true?" If, in fact, the thing that we're seeing would not be the result of normal competition, there I think you have an argument. But there are times when bad things happen, and the cause of that is not a lack of competition. And so the solution of antitrust will not lead to better results….

And so one of the concerns that I have … about introducing all of these new features, especially ones that aren't naturally borne out by the competitive process, which is why we have regulation: to solve those externalities where the market won't. One of my concerns is, if you're trying to solve everything at once, you'll solve nothing at all.

Commissioners Phillips, Wilson Object to FTC's Rescission of Policy Statement on Prior Approval and Prior Notice Merger Provisions

At its July 21, 2021, Open Commission Meeting, the FTC voted along party lines to rescind its 1995 Policy Statement Concerning Prior Approval and Prior Notice Provisions in Merger Cases (1995 Policy Statement).

When it adopted the 1995 Policy Statement, the FTC abandoned what had become routine practice: requiring that transacting parties agree to obtain prior approval, and/or provide advance notice, of future acquisitions within the relevant product and geographic markets.

As a result of this substantial departure from longstanding policy, there is widespread concern that the FTC will expand significantly its exercise of authority over the merger and acquisition activities of companies that enter consent orders with the agency.

The two Republican Commissioners have made their objections to this action known. Commissioner Noah Joshua Phillips issued a Dissenting Statement and Commissioner Christine Wilson posted the text of her oral remarks to the FTC's website "[t]o facilitate transparency."

*    *    *

After objecting to the majority's decision to rescind the 1995 Policy Statement "with the minimum notice required by law, virtually no public input, and no analysis or guidance," Commissioner Phillips set forth two substantive criticisms in his Dissenting Statement.

First, he argued that, by once again broadly subjecting merging companies to prior approval and/or notice provisions, "the majority chooses to impose a decade-long M&A tax on anyone who enters a merger consent." This, he maintained, will discourage companies from entering consent decrees and, in turn, "abrogate" the Hart-Scott-Rodino Act of 1976, which "Congress enacted … to protect the public from anticompetitive mergers and acquisitions before they occur."

With the 1995 Policy Statement no longer in place, Commissioner Phillips concluded that "companies will be less likely to work with the Commission to resolve competitive concerns – contrary to the express purpose of the HSR Act, and leading to less efficient merger enforcement. As consent negotiations become more difficult, we will have to go to court more – wasting precious taxpayer dollars, and accomplishing less."

Second, he argued that "[a] blanket policy of routinely requiring prior approval" unreasonably will place at a competitive disadvantage those subject to consent decrees, as they "may have to bid higher … to compensate the seller for the uncertainty and the longer lead time required to obtain prior approval."This, in turn, will lead to suboptimal transactions, create inefficiencies, and reduce overall consumer welfare.

*    *    *

Commissioner Wilson offered three primary reasons for her opposition to the agency's decision to rescind the 1996 Policy Statement. First, she questioned why the majority chose to remove this important "guardrail to prevent … questionable exercises of enforcement discretion."

Commissioner Wilson pointed out that the 1995 Policy Statement was implemented "following nearly nine years of highly resource-intensive litigation undertaken by the FTC against an abandoned transaction" involving the Coca-Cola Co. (Coke) and the Dr Pepper Company that "some observers viewed … [as] a punishment for Coke's temerity to exercise its legal rights and litigate."

By contrast, a contemporaneous attempt by PepsiCo, Inc. to acquire Seven Up Co. was abandoned without a fight when the agency voted to challenge it – that is, without a legal challenge – and therefore did not lead to the imposition of a prior approval order.

Questioning the "purported rationale" put forth by the majority – that the justification for rescinding the 1995 Policy Statement "lies in saving agency resources that it would otherwise spend to review a transaction the Commission previously considered" – Commissioner Wilson expressed her concern "that the Commission intends to revert to the vindictive approach that led to the nine-year litigation against Coke" and "fear that rescinding the policy statement is being sold to the public under false pretenses."

Second, Commissioner Wilson highlighted the fact that, even with the 1995 Policy Statement in place, the FTC could, and often did, incorporate prior approval and/or notice provisions into consent decrees under certain scenarios, such as "where there [was] a credible risk that a company would attempt the same or approximately the same merger" or "would engage in an otherwise unreportable anticompetitive merger."

Raising doubts as to "whether rescission of this policy will facilitate further constructive use of" such provisions and echoing the sentiment of Commissioner Phillips, she expressed her fear that instead "it will facilitate a massive end-run around Hart-Scott-Rodino ('HSR') filing requirements and, for mergers subject to prior approval provisions, a shifting of the burden of proof that will chill procompetitive deals and hurt consumers." Such a drastic step, she argued, should only be taken by Congress.

Third, Commissioner Wilson agreed with Commissioner Phillips that, "by rescinding the 1995 Policy Statement without providing further guidance, the Commission substitutes uncertainty for a policy that has worked for more than 25 years." In that regard, she noted that this action will create a conflict between the FTC and the Department of Justice's Antitrust Division, which takes a similar approach to prior approval provisions as the FTC did pursuant to the 1995 Policy Statement.

Commissioner Wilson also took issue with the majority's decision to rescind the 1995 Policy Statement without first seeking input from the public, a step the FTC did take prior to its adoption.

*    *    *

Finally, I would be remiss if I didn't mention that Commissioner Phillips and Commissioner Wilson both participated in a Fireside Chat with FSF President Randolph May in March as part of the Free State Foundation's Thirteenth Annual Telecom Policy Conference. Video of that wide-ranging discussion is available here.

Video of FSF Fireside Chat with FTC Commissioners Noah Phillips & Christine Wilson

To kick off the Free State Foundation's Thirteenth Annual Telecom Policy Conference, FSF President Randolph May moderated a Fireside Chat with FTC Commissioners Noah Phillips and Christine Wilson. Theodore Bolema, a member of the FSF Board of Academic Advisors, also participated. Policy topics included antitrust, data privacy, and Section 230 immunity for Big Tech platforms. Video of the March 19 event is now available online:

Free State Foundation

Thirteenth Annual Telecom Policy Conference

 

REGISTER NOW!

Fireside Chat

With
FTC Commissioners Noah Phillips and Christine Wilson
 

WHERE: Via Zoom

WHO:  FTC Commissioner Noah Phillips and 

              FTC Commissioner Christine Wilson

WHEN: Friday, March 19, 2021, 10 a.m., EDT

WHAT: FSF's Thirteenth Annual Telecom Policy Conference – A Fireside Chat

 

FTC Commissioner Noah Phillips

FTC Commissioner Christine Wilson

* * * * *

 

The Free State Foundation's Twelfth Annual Telecom Policy Conference was held at the National Press Club last March 10. As it turned out, it was one of the very last, if not the last, major conferences held in D.C. before the COVID-19 shutdown. We considered ourselves very fortunate that we were able to hold the conference - with its outstanding speaker lineup - and we set our sights on this year's event. We just assumed, without nary a thought, that we would be back at the Press Club this year.

 

Well, here we are, and the reality is, we really don't know when we can safely hold a large scale in-person event. In recent years, FSF's annual conferences routinely have attracted 180 - 200 attendees. This year we will be holding our Thirteenth Annual Telecom Policy Conference via Zoom on different days during March and April. As usual, we plan to have a mix of keynote addresses, conversations, and panels.

 

As part of the conference, FTC Commissioners Noah Phillips and Christine Wilson and Free State Foundation President Randolph May will have a Fireside Chat on Friday, March 19, 10 - 11 a.m.

 

The Free State Foundation's Annual Telecom Policy Conference is widely acknowledged to be one of the nation's premier communications law and policy events, and - just as we have for the past fourteen year - we intend this year to continue to present interesting, informative, and impactful programs.

 

Finally, this June marks the Free State Foundation's Fifteenth Anniversary . We hope to put on a proper in-person celebration of this important milestone later in the year. But, in the meantime, don't be surprised if we bring a bottle or two of champagne to one of our online events! And we won't be surprised if you do too!

  

#FSFConf13

 

Register Now for a Fireside Chat with FTC Commissioners Phillips and Wilson!